The transmission giant's stock (ticker: BWA) is up 75% since we identified it a year ago as a prime beneficiary of rising demand for fuel-efficient vehicles ("BorgWarner's Turbocharged Prospects," June 28, 2010). Yet the shares are off 6% from the start of the year on concerns about a slowdown in the economy, whetting some bulls' appetites.

"It's a compelling valuation," says Colin Langan, auto analyst at UBS Securities, who has a Buy rating on the stock and a price target of $82 a share, up from the recent $68. "The growth story is intact and near term looks better because of rising fuel prices," which should continue to drive demand for BorgWarner turbochargers.

BorgWarner supplies transmission components and other parts for the 2011 Jeep Cherokee.

First-quarter earnings came in ahead of expectations, a frequent occurrence at BorgWarner nowadays. The company, however, didn't raise its full-year earnings guidance, a practice to which investors had also grown accustomed. Management stuck to its previous guidance of $3.85 to $4.15 a share for 2011, up from $3.02 last year, citing production disruptions resulting from the Japanese earthquake.

That leaves the shares trading at 17 times this year's earnings—higher than the market's norm but attractive considering the company's earnings power.

Earnings in the second-quarter could face head winds due to the struggles at BorgWarner's joint venture in Japan. Results should return to more normal levels in the third and fourth quarter of this year and management expects lost production to be recovered within the year.

Margins in the company's drivetrain segment came in lower than the previous quarter's and below expectations, partly because research and development spending ticked higher. Also, the method of accounting for the company's January acquisition of Haldex Traction Systems will cancel out any profit contribution from the purchase in the near term.

Powerful performance in BorgWarner's engine segment, which recorded record revenue, more than offset the impact from the drivetrain drag.

"There's no growth story in the auto space that compares," says UBS's Langan.

It's a name sure to keep portfolios revved up.

-- Sandra Ward

Fujitsu's Agonies, Natural & Manmade

What do you get when you combine a bitter boardroom struggle with a dismal economy and natural disaster of epic proportions? For
Fujitsu,
the Japanese technology conglomerate, it has all added up to a bad tumble in the stock market.

Fujitsu's American depositary receipts (ticker: FJTSY) have sunk 11%, to $27, since we penned a bearish piece on the company a year ago ("Japan's IBM? Not Quite Yet," June 14, 2010). And there's probably more trouble ahead.

Our big concern last year was the boardroom battle, which was distracting management and tarnishing the company's image. In a nutshell, the board sacked Fujitsu's president for his business dealings with a money manager with alleged ties to the underworld.

The former president, Kuniaki Nozoe, has been fighting the directors in court ever since, as has the money manager's firm, Sandringham. It's been a classic three-ring circus.

Japan's economy, for its part, has been one of the world's worst laggards. Gross domestic product has grown for the most part at less than 2% annually since 1992 and is likely to expand just 1.3% this year.

The horrific tsunami and nuclear disaster of March not only caused a big disruption in business, but also damaged many of Fujitsu's plants in northern Japan and distracted a new management team from a key initiative: getting big in the booming new field of cloud computing.

Fujitsu, which has a market value of $11 billion and is best known for computers and software sersvices, is a long way from rebounding. Barring a dramatic turnaround in global demand for computers, analysts figure the company will earn the equivalent of 42 cents a share in the fiscal year ending next March, up from last year's super-depressed 33 cents but well below the previous year's 56 cents.

That leaves the stock trading at 13 times this year's earnings, not exactly cheap. Analysts who follow Fujitsu closely figure the shares and the ADRs are likely to fall at least another 10%.

-- Neil A. Martin

Stalled in the Mall: Why Aéropostale Is Unlikely to Rebound

Few clothing retailers have fared quite so badly in the stock market this past year as
Aéropostale,
the teen-focused clothing chain. While the broad market is up 20%, Aéropostale is down 42% to a recent $17.50. Ugh: We recommended the stock last year at about $30 ("Discounter With a New Sense of Style," July 5, 2010).

We have lost confidence in Aéropostale (ticker: ARO), and at this point would cut losses or avoid it. In an especially troubling sign, its inventory levels are up 16% from a year ago while sales have been flat. It looks as though someone ordered the wrong styles or colors; the company has reported particular weakness in girls' clothing.

In the fiscal first quarter, ended January, sales rose just 1% while same-store sales dropped 7% and gross profit margins fell markedly, to 29.1 from 39.4%.

With its upmarket peers continuing to lower prices to lure shoppers, and Aéropostale itself lowering forecasts for the current quarter, there is little reason to look for an upturn anytime soon. The consensus estimates for fiscal-2013 earnings have fallen from $2.76 a share earlier this year to $1.92.

Aéropostale's stock now trades at 11 times projected earnings of $1.63 a share for fiscal 2012 and about nine times mean projections for fiscal 2013. That's relatively low for the sector, and entirely deserved.

Aéropostale may eventually regain its fashion touch, but for now we're going to take a cue from the cool kids and do our shopping elsewhere.